As anyone who has ever tried it knows, venture capital
investing is not a game for the weak of heart. While it is
certainly true that some venture capitalists have accumulated
massive fortunes and reaped mega profits on their investments,
it is also true that billions of dollars are lost every year on
bad investments. The formula, of course, is quite simple: the
same element of risk that allows the venture capitalist to
expect an increased return on their investment when successful
can also prove disastrous. As one quite successful venture
capitalist told me recently: “There are really only three things
you need to do when you are looking for a company to invest in
successfully: research, research, research.” In other words –
know what you are getting into before committing your
resources.

This principle is particularly true for those investors
seeking to increase their profits by taking advantage of both
the overall boom of the economies and the generally favorable
exchange rates on the currencies in the European marketplace.
Increasingly since the advent of the European Union, American
venture capitalists are finding extraordinary opportunities for
profit investing in both EU and non-EU companies. Whether
searching for established companies seeking a capital boost for
funding expansion or start-up companies in search of seed money,
the market for American investment dollars throughout Europe has
never been healthier. However, as stated above, the investor
needs to know what they are getting into – and needs to
understand that venture capital investing in Europe can
be quite different from what it is in the United States.

Unless you or your company has years of experience
transacting business within Europe you will in all likelihood
need help in both identifying good, solid companies to invest in
and in circumventing some of the challenges presented by doing
business in a foreign land. Some of these challenges include:

Cross-border Investment Restrictions – Unlike the
completely open market which exists within the United States
for investors, it is necessary to keep in mind that when
investing in “Europe” you are actually dealing with dozens
of different nations – each with its own culture, laws and
regulations. These laws can make it extremely difficult to
invest in companies based in particular countries. Even if
you establish a company in one European country for the
purposes of European investing you can still run into
trouble getting money across borders due to cultural,
religious, ethnic or political differences and rivalries
that may exist – some of them going back many centuries. It
is crucial that the investor either know or have a qualified
adviser available who knows – and can help circumvent –
these restrictions.

Resistance to American investment –
While political relationships between the United States and
most European nations are quite good (and have been for
years), a certain amount of cultural resistance towards
doing business with American venture capitalists exists
within the European business community – and within the
European banking community specifically which has been a
source of venture capital funds. Rightly or wrongly, some
European business people view American investors as
predatory in nature, and distrust many generally accepted
American business and investment practices. While this
doesn’t necessarily mean that they won’t do business with
you, it can
negatively impact both the deal the company you are
interested in will make with you and the amount of control
they are willing to give you regarding how your investment
capital is used. In most cases, using a third party trusted
by the company you are looking to invest in as a go-between
to broker your deal will save you time and energy, and in
many cases increase your bottom line return on investment.

Lack of
accessible information – In the
United States, a few clicks of your computer’s mouse and a
couple of phone calls can get you essentially all the
information you need to be able start the process of making
an informed decision about whether or not to invest in an
established company. The same holds true when checking the
backgrounds of the principles of any start-up company you
might be looking to invest in. This is not the case
with European companies and citizens. Privacy laws through
out Europe are usually much stricter then they are in the
United States and as a consequence the access to information
is limited – often times quite severely. It isn’t a question
of the information you need not existing: it does. However,
in many European nations the channels through which you need
to go to actually get the information are quite convoluted
and complicated. In most cases, having a firm familiar with
getting information in these countries by your side will
save you time, effort, and help you make a more informed
decision as to where your investment dollars go.

Identifying
companies to invest in – Always a
challenge even when investing at home, finding exactly the
right company or companies in Europe for investment purposes
can be perhaps the most daunting task any American investor
will face. It is true that you can follow the trends of
successful European investors (investors from the
Scandinavian countries currently have been the most
aggressive and successful), however these investors tend to
be rather conservative in choosing companies to invest in,
and as a consequence many top markets are currently being
almost totally ignored. Identifying these ignored markets
can reap huge profits but can also be extremely difficult
given the information constrictions cited above, as well as
them being half a world away and, in many cases, speaking a
different language! When searching for the best investments
in the European marketplace, it is usually prudent and most
of the time cost effective to get expert advice and counsel
from someone who knows the territory.

There is a notion – and not a totally undeserved one – of the
American venture capitalist being a kind of a financial
gunslinger going it alone, pitting his or her skill against the
marketplace and trying to out draw the competition. While the
same willingness to take risk, courage and entrepreneurial
spirit that is crucial for successful venture investment in the
United States is certainly needed for investing overseas,
the idea of going it alone is usually not as practical as it can
be in the United States. The markets for investment are
certainly there in Europe – and the potential for profit as
great as or even greater than what can be found in the US – but
the terrain will be unfamiliar to most American investors. To
successfully compete in a foreign marketplace, it is crucial
that you have someone with you to guide you along unfamiliar
paths, and help you avoid the pitfalls. By doing this, you level
the playing field, and increase both your chances of success and
your profits!